Could this be the first signs that the financial markets are questioning Goldilocks?
Investors and traders heard almost everything they could have hoped to hear from the Federal Reserve’s interest-rate setting Open Market Committee meeting today.
Sure, the Fed didn’t cut its current 0%-0.25% benchmark rate lower, but no one was expecting that.
The Fed did say, however that it would keep interest rates near 0% through 2022. “We’re not even thinking about thinking about raising rates,” Fed chair Jerome Power said at a video press conference.
And the Fed said it would keep buying Treasuries at a rate of $80 billion a month and mortgage-backed securities at a rate of $40 billion a month.
The Fed did lower its projections for growth in the U.S. economy. The Fed now believes that the economy will contract at a 6.5% rte before rebounding in 2021. Unemployment will fall to 9.3% in the last quarter of 2020 (from an official 13.3 rate in May0 and then decline to 6.5% in 2021.
In other markets, news like this would have been enough to push stocks higher in what we’ve come to call a “Goldilocks” reaction. Growth won’t fall off a cliff–it’s not too cold–and that would be enough to keep the Fed’s low rates in place for years–it’s not too hot.
But today either the market was hoping for more rate cuts–below 0%?–or a slightly more positive read on the economy. And stocks fell after the Fed meeting.
For the day, the Standard & Poor’s 500 closed down 0.53% and the Dow Jones Industrial Average dropped 1.04%. The Russell 2000 small cap index was lower by 2.63%. Tech stocks drove the NASDAQ Composite higher by 0.67% on the day.
